If this is an LLC and each party is listed as some type of partner, limited or general, you can use a K1. That way the entity pays no income tax, SS tax, etc. Income will filter down to your individual tax returns. If you claim someone is an employee, the entity will be responsible for paying many things including SS and disability and withholding of income taxes. You will need to talk to an accountant either way. 1099s are for outside "contractors".